Red Flag For Markets: Pension Funds To Sell "Near Record" Amount Of Stocks In The Next Few Days

Tyler Durden's picture

One of the recurring comments about the "Trumpflation" rally, which has sent US stock markets to constant record highs and pushed the Dow Jones just shy of 20,000 has been that there is virtually nobody selling. According to a poll released today by Reuters, which surveyed 45 fund managers and CIOs around the globe, investors' equity holdings rose to six-month highs in December on bets that buying at all time highs would mean selling even higher.

"Be ready to buy dips," Trevor Greetham, head of multi-asset at Royal London Asset Management, told Reuters however that has proven difficult in the past two months as there have been largely no dips to buy. As Carl Icahn lamented earlier on CNBC, "nobody is selling."

However, according to a new analysis from Credit Suisse, a "seller" may emerge, and a very determined one at that.

In a report by the Swiss Bank's Victor Lin, pension funds that rebalance monthly and quarterly would need to sell $38 billion of U.S. equities in coming days to rebalance to prior asset allocation levels.

While regular readers are well aware, there has been a massive capital shift out of global bonds and into stocks in the 4th quarter, leading ironically to a mirror image result: while the value of global stocks has risen by $3 trillion since the US election according to Deutsche Bank, the value of debt has declined by an identical amount.

But while Mark-To- Market values of key asset holdings in pension portfolios have shifted violently, pensions have specific quotas to adhere to, which in this case means selling winners and buying losers to return to their mandated allocation percentages.

As a result, according to Lin's analysis, the “estimated rotation out of domestic U.S. equities would be one of the largest on record” with relatively large outperformance versus other asset classes both on a monthly and quarterly basis.  Additionally, Lin estimates selling of $864 million in developed market international stocks.

While the exodus from US and International stocks would be substantial, the offset to this would be an aggressively buying of more than $6.3 billion in emerging market equities. Another offset would be the purchase of that "other" formerly beloved asset class: bonds, where pensions could end up buying approximately $22 billion.

There is more bad news: the Credit Suisse analysts believes the selling in U.S. equities could increase to nearly $58 billion (and bond buying to over $35 billion) should equity-bond relative performance continue to widen before year-end.

Assuming his analysis is correct, the question is how will this exaggerated selling take place in the five remaining trading days of 2016 during what is already extremely thin and illiquid tape, where most traders are now gone on holiday, and in which HFTs are just salivating at the thought of frontrunning major block orders: remember, HFT works both on the way up and, in some very rare occasions, on the way down.

We expect an answer in the next several days; should Lin be right one can cancel that Dow 20,000 hat order, if only for the balance of this year.

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Dazman's picture

Don't worry. The Central Wankers will be buying.

abyssinian's picture

"It's only a fantasy for stocks do go down, I have my chubby sauage fingers on the buy button at all times..."  Johnny Yellen.  "Oh I mean Janet."

Hohum's picture

20K now a lock for 2016.

PontifexMaximus's picture

The biggest laugh of 2016

Keltner Channel Surf's picture

Yep, the largest pensions, holding trillions, will choose the most illiquid time, and using their "C" grade traders while the "A"s are on vacation, to slam through massive block sell orders, because going even a week or two into 2017, when they've been over-allocated for 4-5 weeks now, would put their pensioners at great risk, forcing them to work until age 83 instead of 82 3/4.   /SARC

A more likely scenario:  year-end detailed reports won't be available until 3rd week of Jan, partial Investment Committee meetings with consultants, with their pretty charts, won't occur until mid-Feb, then a follow-up report on recommended changes to manager roster a few weeks later, followed by Full Committee meetings in late Feb to consider changes, which will slowly, methodically, be enacted from mid-March through early April ...

Rainman's picture

Got a feeling this is gonna be one hell of a hopium withdrawal.

buzzsaw99's picture

It won't make any difference. [/Newt]

blueberry100's picture

SELL SELL SELL  --- BUY BUY BUY

MexInvest's picture

Okay, What is it? Is this article right or is the one about what Icahn said the right one?

Hey, guys.  Thanks for all of the information about ShepWave.com  They are the only analsyt who #1 gives a clear view, #2 that clear view comes true, and #3 they have a past track record that shows their correctness.

Here are some of the things you guys here have pointed out about them.  Thanks!

 They nailed the election. 

Nailed the Trump rally when all of the other pundits were saying the markets would crash if he won. 

On election night in the US when the Dow futures were down over 800 points they issued a strong buy now signal.

 

They even said that this week would be a range bound tight trading range.

Here are some of the links I found to show some of their past charts which show that they do predict market movement before the markets move.

 https://www.facebook.com/Stock-Market-Technical-Analysis-Elliott-Wave-Theory-166578775325/

FB post…showing QQQ chart from Dec 2nd

https://www.facebook.com/166578775325/photos/a.10153488951800326.1073741827.166578775325/10154303985890326/?type=3

 

 

 https://t.co/LM81DZlPyF

 

 

 

AliSONY's picture
AliSONY (not verified) MexInvest Dec 22, 2016 4:36 PM

Nice charts of past performance for sure.

rejected's picture

Predicting a sell off this may be the time to BTATH!  LOL

roadhazard's picture

Everybody is going to cash in while the cash'ns good.

Secret Weapon's picture

Will sell first week of the new year so gains are taxed in 20017 at a possibly  lower rate.

g'kar's picture

Sell next year after the capital gains tax gets cut

AliSONY's picture
AliSONY (not verified) g'kar Dec 22, 2016 4:37 PM

I think that is what a lot of us are waiting for.  We got to get Obozo out of there. 

Ajax_USB_Port_Repair_Service_'s picture

They're not based in the USA.

Consuelo's picture

 

 

So what are you going to do anyway, post age 65...?

 

- Take another trip?

- How many times can you visit the grandkids - assuming you even want to...?

- Golf? - please...

- Stare at the old lady - or have her get irritated with you...?

- Drop dead of a stroke after 2 years of additional weight gain from all that newly-found time on your hands? (Most likely outcome, btw...)

 

Not to worry though.   I see assholes & elbows as far as the eye can see in the future for nearly everyone in some capacity or another.

Ban KKiller's picture

I'm so glad this is a free market. All on the up and up....

Literally.

Hanomy's picture

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